After ‘throttling’ back in 2023, Lemonade to push growth to reach profitability

After intentionally “throttling” growth in 2023, executives at Lemonade, the upstart insurtech, said Wednesday they expect to take off the gloves this year and accelerate its growth plans by a factor of three.

Lemonade, which offers renters, homeowners, auto, and pet insurance, said its 20% growth rate last year actually outpaced the industry but it amounted to a “slowdown,” for the New York-based all-digital insurer.

“It things go to plan and as more rate updates come into effect, we’ll have more products in more areas where we can accelerate our growth,” said Lemonade president and co-founder Shai Wininger. “Our 77% loss ratio this quarter  [down 12 points from the fourth quarter of 2022] should not be taken as an indication that our work on rate adequacy is done. We still await significant further rate approvals.”

Lemonade sees more opportunities for growth

With each passing month, Wininger said, the company is seeing more and more opportunities for profitable growth across its portfolio, including home and car, and the company will relax growth constraints accordingly.

“This is great news and it’s the reason we’re projecting to begin to accelerate growth this year,” Wininger said. “Growth may be a virtue in its own right, but for us it’s a necessity.”

Yet the notion that profits are just around the corner for the nine-year-old company is becoming dogma for impatient investors, who reacted to the company’s fourth quarter and year-end results by punishing the once high-flying Lemonade stock, pushing it  down more than 25% in early trading Wednesday.

Still, Lemonade’s fourth quarter revenue of $115.5 million, represented a 30.7% increase compared to the previous year’s. Its "in force premiums," which Lemonade says is "the aggregate annualized premium for customers as of the period end date," rose by 20% year-over-year to $797 million, mostly as a result of a 12% increase in customers, which crossed the two million level, and a 7% increase in premiums per customers.

Gross profit rose 165%, to $33.6 million compared to the quarter a year ago. But Lemonade's 2023 numbers were again battered by operating expenses – while falling 5% from the previous year – stood at $90 million by the end of 2023. That adds up to another losing year for Lemonade and its officers said it expects another losing year this year.

Lemonade 2023: 'Stream of improvements'

“Underpinning our results was a steady stream of improvements in our ability to match rate to risk as well as in our operational efficiencies,” said Daniel Schreiber, Lemonade’s co-founder and CEO. “In many ways, therefore, 2023 was the year when the plan came together…when the thesis of Lemonade transitioned from being a hypothesis to being more evidence-based.”

The year didn’t bring a “mission accomplished moment,” Schreiber said, “not by a long shot.”

But the results, he said were “tangible and material and increases our confidence that we're on track not only to turn cash flow positive next year with plenty of cash in the bank, but to build a large, enduring, and profitable business thereafter.”

Investors have heard this refrain before, but some analysts had to agree that the company seems headed in the right direction, with its earnings before interest, taxation, depreciation, and amortization (EBITDA), a key Wall Street measure, showing a giant improvement. Lemonade reported an EBITDA loss of $28.9 million, but that was a near $23 million improvement from year ago.

“We think there may be an opportunity there, with modest conviction,” said a report from Quad 7 Capital, a team of former asset management fund analysts. “The company is looking for revenue to grow to $507.5 million at the midpoint, less than the $521 million consensus figure. But it is tough to be disappointed when that would be growth from $315 million we just saw in 2023.”

Report: Improvements may 'stall' in 2024

But the analyst report predicted that improvements in EBITDA would “stall” this year.

“With higher buildout expenses expected in 2024 it sees $157.5 million in adjusted EBITDA losses, compared with $172.6 million in losses in 2023,” Quad 7 said in its report on Seeking Alpha.

Looking back on the past year Schreiber noted the company was buffeted by storms that afflicted both insurance and technology companies, of which Lemonade is both.

“As we reflect back on this tumultuous period, we find resonance in the famous words of Nietzsche, or Kelly Clarkson, if you prefer, that what doesn't kill you makes you stronger,” he said. “We are quite sure that we are emerging from these shocks the better for having endured them. We are, we believe, leaner and more focused, stronger and more resilient with better unit economics and with fewer competitors than would have been the case had the turbulence never come. As the African proverb says, ‘smooth seas never made a skillful sailor.’”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.